European Market Update

(FR) France Q2 Final Non-Farm Payrolls Q/Q: 0.2% v 0.2%e

(GE) Aug Final Consumer Price Index M/M: 0.0% v 0.0%e; Y/Y: 1.0% v 1.0%e
(GE) Aug Final CPI EU M/M: 0.1% v 0.0%e; Y/Y: 1.0% v 0.9%e

(FI) Finland July Preliminary Trade Balance: -€45M v €365M prior

(IN) India Primary Articles WPI Y/Y w/e Aug 28th: 15.4% v 15.2% prior; Food Articles WPI Y/Y: 11.5% v 10.9% prior

(RU) Russia Gold & Forex Reserve w/e Sept 3rd: $477.3B v $475.8B prior

(CZ) Czech Aug CPI M/M: -0.3% v -0.2%e; Y/Y: 1.9% v 2.0%e

(SW) Sweden Aug headline CPI M/M: 0.0% v 0.1%e; Y/Y: 0.9% v 1.0%e; CPI Level: 302.06 v 302.04 prior
(SW) Sweden Aug Underlining headline CPI M/M: 0.0% v 0.0%e; Y/Y: 1.4% v 1.5%e

(NE) Netherlands Aug CPI M/M: 0.2% v 0.3%e; Y/Y: 1.5% v 1.7%e
(NE) Netherlands Aug CPI EU Harmonized M/M: 0.1% v 0.2%e; Y/Y: 1.2% v 1.3% prior

(EU) ECB Publishes Sept. Monthly Report: Mirrors the ECB Sept 2nd press conference (details below)

(UK) July Visible Trade Balance: -£8.7B v -£7.5Be; Total Trade Balance: -£4.9B v -£3.3Be; Trade Balance Non EU: -£4.8B v -£4.3Be

(GR) Greece July Industrial Production Y/Y: -8.6% v -5.7%e

Fixed Income:

(IR) Ireland Deb M in 5-month and 7-month Bills vs. range €400-600M Indicated

Sold €150M in Feb 2011 Bills; avg yield 1.925% v 1.978% prior; Bid-to-cover: 9.4x v 10.1x prior

Sold €250M in Apr 2011 Bills; avg yield 2.190%% v 2.348% prior; Bid-to-cover: 5.4x v 4.1x prior

(IN) India sold total INR110B in 2015, 2022 and 2027 bonds as expected

(HU) Hungary Debt Agency sold total HUF70B in 2014,2016 and 2020 Bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities:

As of 5:40am ET (9:30 GMT) Euro Stoxx 50 Index +0.4% at 2,765; DAX Index +0.5% at 6,192; CAC-40 Index +0.6% at 3,698 and FTSE 100 Index +0.8% at 5,474

The Peripheral sentiment in Europe improved on the continued chatter that the ECB was again purchasing Gov't Bonds. The better Irish debt auction solidified the sentiment and provided the means for equities to rally

Most of the equity action during the session came from the UK. Among notable names, Home Retail [HOME.UK], UK's No 1, household goods retailer, fell 3.8% at the open following trading statement. The Argos like-for-like sales fell more than what analysts had expected and the Homebase like-for-like sales were flat in line with expectations. Furthermore, profitability, as shown by gross margins, had decreased and the company forecast a drop in group's pretax profit of 20-25%.

William Morrison Supermarkets [MRW.UK] reported first half results which were in line with the estimates and increased its interim dividend by 14%. But shares fell 1% at the open as company forecast low growth and continued pressure on consumer spending. Company will seek to open convenience stores and sell groceries online in order to broaden growth prospects.

British housebuilding name, Redrow [RDW.UK] opened higher by 1.5% after it narrowed its loss and improved revenues for the fiscal year. Gross margin improved significantly to 10.5% from 1.8% a year ago.

Lloyds [LLOY.UK] lifted banking sector rising 2.7% in the session after Barclays upgraded the company to Equal-weight from Underweight. As part of its restructuring efforts, FT reported that the bank reached an agreement in principle to sell debt and equity stake in Crest Nicholson for a cash consideration. The value is speculated to be at about £150M, which Lloyds refused to confirm

In the continuing M&A saga between Dana Petroleum [DNX.UK] and Korean National Oil Corp (KNOC), Dana's shares fell 1.3% after KNOC, as expected, stated that the £1.9B bid was full and final. Dana raised its defense yesterday by acquiring the North Sea oil assets, a move judged to be useless by markets.

Speakers:

ECB member Liikanen reiterated central bank's view that double-dip recession was unlikely but conceded that an economic slowdown was likely once stimulus measures ended.

ECB's Mersch made commented that reflected the ECB monthly report. Mersch stated that there were initial signs of broad based, gradual economic recovery in the Euro region. He reiterated the long-standing central bank view that interest rates were appropriate and again stressed that economic growth would be bumpy and uneven. Q2 GDP growth was very positive but reiterated central bank view that uncertainty remained high. Inflation risks are tilted higher while growth risks were tilted to the downside. ECB to decide on unwinding of unconventional liquidity measures in Dec

China PBoC Official: Talked about yuan issues during meeting with US official Summers; Did not offer any more details

China PBoC advisor Xia Bin commented in the Chinese press that one should not expect any change in China's tightening policies in the property sector as he believed the Chinese economy was 'set to slow'

China PBoC Gov Zhou commented that zero rate interest policy by central banks could discourage banks. In general central banks should keep a certain interest rate margin to encourage lending

Former PBoC Adviser Yu Yongding commented that many factors are related to the yuan exchange rate levels and that the Gov't must seek a balance between such issues. China faced international pressure for Yuan currency to appreciate. Exchange rate linked to exporter interest and upward pressures on currency reserves

ECB's monetary policy basically reiterated the ECB press conference from last week that the current monetary stance remained accommodative and the current record low interest rates were appropriate. The report also noted that Euro Zone members needed to be prepared to accelerate consolidation. The crisis had challenged Euro Area money market integration And the sustainability of money market normalization remains unclear

Fitch: Fiscal consolidation in the Euro region yet to begin in earnest and did not expect euro-wide fiscal retrenchment to begin until 2011

Greece Fin Min Papaconstantiou reiterated the view that Greece remained on track to hit its 2010 deficit targets (implies 8.7% to GDP) and that 2010 GDP contraction to be no worse than 4%

Greece Debt Head (PDMA) Christodoulou: Reiterated that there will be no Greek debt restructuring; country was engaged in tough austerity measures

Japan Vice Fin Min Ikeda: Reiterated prior views that will take decisive action on currencies if necessary

OECD stated that the economic slowdown was "more pronounced" than anticipated

Currencies/Fixed Income:

As noted in the equity section The Peripheral sentiment in Europe improved on the continued chatter that the ECB was again purchasing Gov't Bonds. The better Irish debt auction solidified the sentiment and provided the means for equities to rally. The EUR/USD again managed to hold the key hourly level of 1.2660 early on and moved above the 1.2720 area following the Irish auction results.

A wider UK trade deficit propelled the pound sterling to test below 1.54 against the USD and approach 0.8270 against the Euro. The data suggested that the UK continued to struggle to regain competitiveness on the international markets.

In the Papers-Geopolitical:

Following yesterday decision by the Irish government to split Anglo Irish Banks into a funding bank and an asset recovery bank, Ireland's Finance Minister Lenihan stated that Anglo Irish Bank plan is an 'orderly work out', with definite figures to be produced before October. He also noted that National Asset Management Agency (NAMA) in a position to give accurate discount on remaining Anglo loans.

In Britain, following earlier press reports of the Financial Services Authority (FSA) fining investment bank Goldman Sachs, it was confirmed that it was to fine the bank £17.5M. According to the FSA, Goldman's systems and controls were not inadequate.

Notes/Observations

Australian employment better than expected. Dealer believe that it will move above parity 'soon'

Highly unlikely Japan does any currency intervention ahead of G20. Dealers point out that September has a plethora of G20-related meetings. Expect the rhetoric to pick up on calls for CNY appreciation

Chinese rumors on 'fund investigations' initially weighed upon soft commodities

Irish Bill auction results provide 'relief' in the peripheral environment

Looking Ahead

6:00 (CZ) Czech Republic to sell CZK8.0B in 9-month Bills

6:00 (IR) Ireland Aug CPI M/M: No est v 0.0% prior; Y/Y: No est v -0.1% prior

6:00 (IR) Ireland Aug CPI EU Harmonized M/M: No est v -0.1% prior; Y/Y: No est v -1.2% prior

7:00 (UK) BOE Interest Rate Decision: Expected to maintain both interest rates and Asset Purchase Target (APT) unchanged at 0.50% and £200B

7:30 (BR) Brazil Central Bank (COPOM) Monetary Policy Meeting Minutes

8:00 (BR) Brazil Aug IBGE Inflation IPCA M/M: 0.1%e v 0.0% prior; Y/Y: 4.5%e v 4.6% prior

8:15 (CA) Canada Aug Housing Starts: 185.0Ke v 189.1K (revised)

8:30 (US) July Trade Balance: -$47.0Be v -$49.9B prior

8:30 (CA) Canada July New Housing Price Index M/M: 0.1%e v 0.1% prior

8:30 (CA) July Int'l Merchandise Trade: -C$800Me v -C$1.1B prior

8:30 (US) Initial Jobless Claims: 470Ke v 472K prior; Continuing Claims: 4.45Me v 4.456M prior

9:00 (BR) Brazil July CNI Capacity Utilization: No est v 82.5% prior

9:00 (SA) South Africa Central Bank (SARB) Interest Rate Decision: Consensus expectations is for the interest rate to be cut by 50bps to 6.00% from the current level of 6.50%

10:00 (MX) Mexico Aug Consumer Prices M/M: 0.3%e v 0.2% prior; Y/Y: No est v 3.6% prior; Core Cpi M/M: 0.1%e v 0.2% prior

10:00 (MX) Mexico July Final Trade Balance: No est v $1.0B prelim

11:00 (US) Fed to Purchases Notes/Bonds

13:00 (US) Treasury to sell $13B in 30-Year Bonds Reopening

23:00 (CH) China Government to sell 3-month Bills